In setting a new employee’s pay, what do you consider? Past experience? Check. Education? Check. Salary at the last job? Not so fast. In a recent Ninth Circuit decision, the court framed the question as follows:

Can an employer justify a wage differential between male and female employees by relying on prior salary?

The court said not just no, but heck no and overturned a 1982 case that suggested otherwise.

The Facts

In 2009, the Fresno County Office of Education hired Aileen Rizo as a math consultant. In setting her salary, Fresno County applied Standard Operating Procedure 1440 (SOP 1440) that dictated a new hire’s salary was set by adding 5 percent to that person’s prior salary, and then using that amount to put him or her in the salary schedule. This is how Fresno County set everyone’s salary—regardless of race or sex or anything else.

A few years later, Ms. Rizo was talking with her coworkers and found that her male colleagues hired after she was hired were making more money. Suffice it to say, she was not happy about that and filed a complaint. Fresno County responded that they were setting everyone’s salary the same way and, in fact, this process placed more women in higher compensation steps than men. Still not happy, Ms. Rizo filed a lawsuit under a number of state and federal statutes, including the federal Equal Pay Act (EPA).

The Law

The EPA provides that no employer shall discriminate between employees on the basis of sex

“by paying wages to employees . . . at a rate less than the rate at which he pays wages to employees of the opposite sex . . . for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. . . .”

Unlike Title VII, the EPA does not require a plaintiff to show that the employer intended to discriminate. Instead, the plaintiff need only show that she is doing the same job as a male employee (and she only needs to have one male comparator) but is paid less. If the plaintiff can establish those facts (and that is not always easy), the employer must prove one of four affirmative defenses. In this case, the relevant affirmative defense was that the pay differential was “based on any factor other than sex.”

Back to Fresno and the Ninth Circuit

Fresno County conceded that it paid Rizo less than her male counterparts. However, it moved for summary judgment noting that SOP 1440’s reliance on an employee’s prior salary was a “factor other than sex” under the EPA. The district court denied Fresno County’s motion but certified it for immediate appeal.

A three judge panel vacated the district court’s decision. The panel held that a prior Ninth Circuit decision, Kouba v. Allstate Insurance Co., had settled the issue back in 1982. Under Kouba, an employer could rely on prior salary as a “factor other than sex.” Ms. Rizo did not take that decision lying down and asked for the entire Ninth Circuit to weigh in.

In an en banc decision, the Ninth Circuit did so, indicating its intent to “clarify the law, including the vitality and effect of Kouba.” It certainly clarified its position, holding that:

“Prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise—to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.”

That is pretty clear.

Now What?

Some jurisdictions have already prohibited asking about prior salary in an effort to close the gender wage gap and this is more evidence that relying on prior salary is not viewed as gender neutral.

• Employers in the Ninth Circuit (which covers the entire West Coast) should take any consideration of prior salary out of their matrix. Stick to experience (years and otherwise), education, skills, etc.
• Employers in other areas of the country should check their state laws and federal circuits to find out if they can rely on prior salary.
• Finally, employers (with the assistance of counsel) should regularly look at pay data to compare long-term employees versus more recent hires to see if you have a potential problem.

If you have a male employee making more money than a female counterpart, be careful. That is the kind of thing that gets you a lawsuit.